Do I need an FCA license to offer retail finance to customers?

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Offering your customers more ways to pay at checkout is always a good thing – especially in today’s competitive and turbulent retail landscape. 


One of the most popular alternative payment methods is retail finance. Letting your customers spread the cost of their order over short or longer periods of time is an excellent way to keep the sales coming in – while giving your customers access to products they might’ve had to wait longer to purchase.   


There are currently 20+ retail finance providers in the UK, offering short and longer term lending options. So when it comes to choosing a provider, you can simply take your pick. Simple (we’ve even written a guide to help you get there). 


Here’s where it gets a bit more complicated: whatever sector you operate in, offering regulated retail finance requires compliance with regulations set out by the Financial Conduct Authority (FCA) in the UK. The TL;DR of it is: you need an FCA license if you want to offer regulated retail finance to your customers. 


In this guide, we’ll aim to demystify the process of getting a retail finance license from the FCA –  whether through direct application or through becoming an Appointed Representative via a Principal. 


Understanding Retail Finance and FCA Regulation 


If you’re reading this, you likely already know what retail finance is and how it works (if not, check out our helpful guide in this topic). 


Offering retail finance at checkout can boost sales and increase customer loyalty. However, it also brings regulatory obligations. In the UK, the FCA oversees the retail finance sector to ensure fair treatment of consumers, transparency, and stability within the financial market. If you’re a merchant and you want to offer regulated finance products (interest free/interest bearing finance spread across longer than 12 months), you need an FCA license to do so – regardless of which provider you partner with.  


There are two ways to get this license: 


1. Apply directly 


2. Become an Appointed Representative via a Principal 


Let’s look at the process for applying directly.  


How to obtain FCA licensing directly


For your business to become regulated by the FCA, you’ll need to undergo a rigorous process to ensure that you’re both aligned with and actively demonstrating the values set out by the FCA.  


It’s vital to note that FCA application is not guaranteed – nor is it dependent on how much business acumen you have or the scale of your business. The application process is built on a set of standards known as the ‘Threshold Conditions’.    


Here’s how to start your application. 


1. Familiarize yourself with FCA regulations


Before diving into the application process, be sure that you understand the FCA’s regulatory framework. This includes compliance requirements related to transparency, affordability assessments, treating customers fairly, and handling complaints. You can find more information on this here 


2. Prepare your application


When it comes to applying, the FCA are very clear that you should be as meticulous as possible. Be sure you have all required documentation, including business plans, financial statements, compliance policies, and risk management frameworks. You’ll also need to appoint a “responsible person” within your company to oversee regulatory compliance and act as the primary point of contact with the FCA. 


3. Submit your application


Once you’re sure the application is complete, you can submit it to the FCA for review. The FCA will assess the application based on various factors, including:  


– The financial standing of your business 


– Compliance history 


– Suitability of key personnel 


– Adherence to regulatory requirements 


Please note: the approval process might take several months, during which the FCA could request additional information or clarification. But considering the benefits that retail finance could bring to your sales goals and growth, it’s definitely worth the wait! 


4. Implement compliance measures


Once you’ve gotten the green light and received your retail finance license, the fun’s just getting started. You’ll need to put robust compliance measures in place to ensure ongoing adherence to FCA regulations. This includes regular monitoring of sales practices, customer interactions, complaints handling, and internal controls. You also need to stay abreast of regulatory updates and adapt processes accordingly. 


How to become an Appointed Representative via a Principal 


You might be confident enough to follow the steps outlined above and get your license on your own. But just in case you’d rather not handle the application (for whatever reason), the good news is that you can still offer regulated finance as an Appointed Representative. 


What is an FCA Appointed Representative? 


An Appointed Representative (AR) is a business or an individual who utilises the FCA permissions of its FCA Principal. Those permissions are included within a legally binding agreement, along with other provisions that both parties must abide by.  


Please note: as an AR, you can’t be authorised in your own right by the FCA (unless you’re looking to become an AR purely for the purposes of brokering insurance products).  


Because an AR isn’t directly authorised by the FCA, they don’t have direct regulatory obligations placed upon them. Instead, the Principal is liable for the AR’s business practices, including things considered ‘unregulated’ (for example its culture or financial resources).   


The onboarding process of an AR is extensive and, although not as demanding as that of an FCA application, it is as in-depth. This is, of course, to ensure that they – as an FCA-regulated firm – are 100% happy to extend their permissions. 


What is a Principal? 


A Principal firm is a business or individual who is already regulated by the FCA, and who is ultimately responsible for maintaining compliance with regulatory requirements.


As far as the FCA is concerned, an AR is simply an extension of a Principal. Their inhouse compliance processes and procedures must align with the expectations of the FCA. Any non-compliance of an AR (in this case, you, the merchant) could render the agreement untenable, given the risk to the Principal, as ARs are ultimately responsible for their own actions.  


How does the relationship between an Appointed Representative and a Principal work? 


In order to become an AR, you’ll need to apply via your preferred Principal company or individual. If you meet the requirements and are accepted as an AR (which does come with fees and other associated costs), here are some of the ways your Principal will work with you: 


Regulatory Compliance:  


FCA Principals are responsible for ensuring that companies seeking admission to the financial markets comply with all relevant regulations and listing rules. This means they’ll conduct due diligence on your company’s background and business dealings to make sure you meet the criteria. 


Application Process Assistance:  


Principals assist companies like yours throughout the application process. They’ll help guide you through the necessary paperwork, disclosures, and regulatory filings required for listing. 


Corporate Governance: 


Your Principal wants you to succeed in the long term, so they’ll help you establish and maintain robust corporate governance structures that align with regulatory standards. This could mean advising on board composition, internal controls, risk management practices, and compliance procedures. 


Ongoing Compliance Support:  


After you’re successfully approved for offering retail finance, your FCA Principal should continue to provide support and guidance to ensure ongoing compliance with regulatory requirements. They’ll monitor changes in regulations and advise you on any necessary adjustments to your operations or disclosures. 


Risk Management:  


Trading in regulated circles like retail finance doesn’t have to be risky business. If you have a Principal, they’’ll conduct risk assessments, implement compliance programs, and provide training to you and your employees on regulatory matters. 


Market Access:  


Through their expertise and established relationships within the financial industry, Principals can help your business gain access to capital markets and investors. This can be particularly valuable if you’re looking to raise funds through public offerings or boost your credibility in the financial markets. 


Hopefully this guide has given you some clarity around how to get an FCA license to offer finance to your customers. If you’re considering offering retail finance, why not browse our full range of short and longer term lending options now? 

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Please note, a minimum turnover of £5M and minimum trading of 24 months is required to work with DivideBuy.

Please note, a minimum turnover of £5M and minimum trading of 24 months is required to work with DivideBuy.


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